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Nominal shocks in monopolistically competitive markets: An experiment

Listed author(s):
  • Davis, Douglas
  • Korenok, Oleg

A market experiment examines the capacity of price and information frictions to explain real responses to nominal price shocks. Results indicate that both price and information frictions impede the response to a nominal shock, as predicted by the standard dynamic adjustment models. Observed adjustment delays, however, far exceed predicted levels. Results of a pair of subsequent treatments indicate that a combination of announcing the shock privately to all sellers (rather than publicly) and a failure of many sellers to best respond to their expectations explains the observed adjustment inertia.

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File URL: http://www.sciencedirect.com/science/article/pii/S0304393211001085
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Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 58 (2011)
Issue (Month): 6 ()
Pages: 578-589

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Handle: RePEc:eee:moneco:v:58:y:2011:i:6:p:578-589
DOI: 10.1016/j.jmoneco.2011.11.001
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505566

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